Acme Process Equipment Co. v. United States

• Decision Date: 11 June 1965
• Docket Number: No. 538-59.,538-59.
• Parties: ACME PROCESS EQUIPMENT CO., to Its own Use, and for the Use and Benefit of Kingston Tool Company, Nicholson Products Company, K & G Sales Company, All Metals Industries, Inc. and the Pittsburgh National Bank, Successor to the People's First National Bank & Trust Co., Assignee of All Metals Industries, Inc. v. The UNITED STATES.
• Court: U.S. Claims Court

171 Ct. Cl. 251, 347 F.2d 538 (1965)

ACME PROCESS EQUIPMENT CO., to Its own Use, and for the Use and Benefit of Kingston Tool Company, Nicholson Products Company, K & G Sales Company, All Metals Industries, Inc. and the Pittsburgh National Bank, Successor to the People's First National Bank & Trust Co., Assignee of All Metals Industries, Inc. v. The UNITED STATES.

No. 538-59.

United States Court of Claims.

June 11, 1965.

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Jack Rephan, Washington, D. C., for plaintiff. Solomon Dimond, Washington, D. C., of counsel.

David Orlikoff, Washington, D. C., with whom was Asst. Atty. Gen. John W. Douglas, for defendant. Hyman Lazeroff, Gravelly Point, Va., and James F. Merow, Washington, D. C., of counsel.

Before LARAMORE, DURFEE, and DAVIS, Judges, and JONES and WHITAKER, Senior Judges.¹

DAVIS, Judge:²

In January 1953, plaintiff entered into two separate contracts with the Army, one for the production of elevating and traversing assemblies and the other for the manufacture of 75 mm. rifles. The present claims grow out of the termination of the former contract for the Government's convenience.³ There are in effect two independent demands, one urged by the Acme Process Equipment Company as prime contractor for itself and all of its subcontractors save one, and the other on behalf of All Metals Industries, Inc., the principal subcontractor.

The contract out of which the claims arise was executed on January 7, 1953, by the Rock Island Arsenal of the Army Ordnance Corps and administered by the Philadelphia Ordnance District. The Government terminated the agreement for its own convenience on March 17, 1954, before any deliveries had been made. The affected parties duly filed termination claims on a total cost basis and for the next three years negotiated fruitlessly to reach a settlement. Finally, on June 19 and 20, 1957, the contracting officer made findings as to amounts due Acme and All Metals, and thereafter an appeal was taken to the Armed Services Board of Contract Appeals. The claimants engaged in subsequent negotiations with the contracting officer to achieve a settlement notwithstanding the pendency of the appeal, but these resulted only in the filing of new claims in increased amounts, the issuance of revised findings superseding the original ones, and the submission of modified appeals to the Board. In the meantime partial payments were made on the claims. The Board decided that a net balance of $21,518.73 was due on the Acme claim after crediting a part payment of $20,000, and that All Metals was entitled to an additional $32,879.01, after crediting partial payments of $50,040.28. On motions for reconsideration, the Board reduced the net amount due on the All Metals claim to $18,096.38.

FAILURE TO PAY THE BOARD'S AWARD

Following the Board's final determination, the defendant declined to disburse the amounts awarded to the claimants unless they filed general releases without reservations or exceptions. Plaintiff asserts that this refusal breached Article 21(g) of the contract, which states that "if an appeal has been taken" from the decision of the contracting officer, the Government is to pay "the amount finally determined on such appeal." The contractor argues that "appeal" comprehends only subsequent actions within the executive department, and not those ultimately taken to this court. The contention is that, after a favorable final decision by the chief of an executive department (or a board, as his duly authorized representative), the defendant is obliged forthwith to pay the contractor the amount awarded, and failure to do so breaks the contract.

Although in other circumstances there may be some merit in this position, it is unavailing here. Acme's point is that the defendant and the court are bound by all those administrative determinations of fact which the contractor does not challenge. On the basis of this purported finality, it is argued that, since we may not reduce the figure awarded by the Board, the contractor has necessarily incurred damages in that amount.⁴ The premise is untenable, as this court has recently held: "Whatever may have been the rule or the practice before the Wunderlich Act, 68 Stat. 81, 41 U.S.C. §§ 321-322, that statute compels us to reject plaintiff's suggestion. It is in effect asking that we read into all government contracts (with Disputes clauses) the provision that a factual claim otherwise properly before the court may not be decided on the merits if there was a prior administrative determination favorable to the contractor, i. e., a clause that administrative determinations for the contractor are automatically conclusive absent fraud. The standard Disputes clause does not and cannot now contain such a limitation, because the Wunderlich Act specifically prohibits the inclusion in a government contract of any clause making the decisions of an administrative official on questions of law or fact completely final and free from judicial review. 68 Stat. 81, 41 U.S.C. §§ 321-322. The Act, phrased in universal terms, makes no qualification or exception for administrative orders sustaining the contractor. The opinions which may indicate a contrary position were all handed down before the passage of the Wunderlich legislation. In cases decided subsequent to its enactment, this court has not hesitated to reexamine administrative determinations upholding the contractor, and to upset them if the standards for review set forth in the statute call upon us to conclude that the decision below should not stand." C. J. Langenfelder & Son, Inc. v. United States, Ct.Cl., 341 F.2d 600, 607, decided Feb. 19, 1965 (citations and footnotes omitted.)⁵

Acme wishes to use this court as a means of automatically enforcing an administrative decision in its favor. The Wunderlich Act forbids that result. Rather, when a contractor believes the Government is wrongfully withholding his funds, the courts afford a remedy only if he shows his entitlement under the standards of review set forth in the Act. Aside from true settlements or compromises, the parties cannot by-pass the statute by endowing administrative decisions (favoring one side or the other) with absolute finality in advance. In this case, the defendant has come to concede that the Board was correct in awarding $21,518.73 to Acme, but the Army did not breach the contract simply by refusing at first to accept the Board's decision. The breach was the failure to pay plaintiff what was rightfully owing to it on the items considered by the Board, not the refusal to acquiesce blindly in the Board's award. Plaintiff may not recover on this basis.

THE ACME CLAIM

In addition to the Board's net allowance to Acme of $21,518.73, which the defendant no longer contests, the plaintiff claims to be entitled to $5,200 for post-termination legal and accounting expenses disallowed by the Board,⁶ and $5,907.56 deducted because of a violation of the covenant against contingent fees.

Post-Termination Expenses. — Article 21 of the general provisions of the contract governs the procedures obtaining when the Government terminates a contract for its own convenience. Among the expenses incurred by the contractor which the United States agrees to reimburse are "the reasonable costs of settlement, including accounting, legal, clerical, and other expenses reasonably necessary for the preparation of settlement claims * * *." The same contract article incorporates by reference Armed Services Procurement Regulation 8-402(c) (9), which specifically disallows expenses incurred in any formal appeal, either within an executive agency or in court.⁷

Acme's termination claim included $3,500 for the legal services of Solomon Dimond, who first entered the case in connection with the preparation and filing of the appeal to the Board. From September 1957 to April 1958, the period for which the fee is claimed, Mr. Dimond's work consisted primarily of negotiations with the contracting officer to settle the pending claim. Because the prospect of settlement was in the offing, the Board granted the defendant, on October 21, 1957, a seventy-day extension of time (until December 30) within which to file its answer. The Government's request that the appeal be classified as "awaiting administrative disposition" was also granted. When efforts to compromise the matters in dispute broke down in early December, Mr. Dimond continued negotiating with the contracting officer until April for the purpose of obtaining revised findings from which to appeal. The Board disallowed the claim for his services during the entire period because "they were rendered in connection with the appeal, even though they include unsuccessful negotiations to settle it. They were not rendered in connection with the original preparation and presentation of the termination settlement proposal." Our Trial Commissioner, in his opinion, reversed the Board's determination, allowing reimbursement for the full amount claimed.

We are concerned essentially with the meaning of the pertinent provisions of contract article 21 and the incorporated regulation, which permit reimbursement for "reasonable costs of settlement." On this question of law, the prior administrative determinations are, of course, not binding. 41 U.S.C. § 322. In support of the restrictive view adopted by the Board, the defendant relies heavily on ASPR 8-402(b) (27), allowing compensation for "reasonable * * * legal * * * expenses necessary in connection with the termination and settlement of the contract * * * but only to the extent reasonably necessary for the preparation and presentation of settlement proposals and cost evidence in connection therewith", as well as on ASPR 8-402(c) (9), supra, disallowing "legal * * * services and related expenses incurred by a prime contractor * * * in any formal appeal or submission * * *." The Government reads these limitations in...